Retirement plan type determines investment options

Q. What's the difference between a 401(k) and a 403(b)? Can either be transferred into a regular mutual fund?

A. Those two types of retirement savings plans take their odd names from sections of the tax code. Which type of plan you will be offered depends on your employer; 403(b) plans are limited to public school systems and tax-exempt organizations such as churches and charities.

Both plans offer tax benefits. You get to defer income taxes on your contributions and investment earnings until you withdraw the money, usually after you retire. One big difference is that the investment choices available through 403(b) plans tend to be heavy on tax-sheltered annuities, while the vast majority of 401(k) plans offer mutual funds or similar investments.

Based on your question, I suspect that your money is in one of these tax-sheltered annuities. I suggest that you first check with your employer to find out whether any "regular" mutual funds are available to participants in your plan. You may have options that you don't know about. If so, you can at least direct your new contributions to these funds.

Whether you also can move the money you have invested in an annuity depends on the terms of your annuity. Some annuities impose surrender penalties on withdrawals. If your money is in an annuity and you don't have a copy of the rules, ask the company to send you one.

When you retire or change jobs, you can roll over your money to an individual retirement account with a brokerage or mutual fund company. You can then invest in any of the mutual funds your new IRA custodian offers.

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Q. I recently heard officers of a non-profit business organization say that they had to reduce their cash balance to nearly nothing to qualify as a non-profit. I think this is wrong. Any going concern has a need for funds to carry on whether it is July or December. Why do people think this way? Is there a maximum amount any business can have on hand when operating as a non-profit group?

A. There is no tax or legal ceiling on the amount of money a non-profit group can have in the bank.

"It's philosophical," said St. Petersburg CPA Wayne N. "Skipp" Fraser. "There are some not-for-profits that believe as a philosophical approach that low cash balances give the appearance of being a needy organization or being a good steward of donors' money. There are other not-for-profits that say, "We are going to meet our mission but we are going to run this organization as if it were a business and put good business principles in place.' "

He says a businesslike approach works best in the long run and agrees with you that organizations need working capital.

While there are no limits on net worth, there are constraints on the income non-profit organizations can generate on businesses they operate unrelated to their missions.

"Unrelated business income can be subject to tax and excessive unrelated business income could jeopardize tax-exempt status if it's abused," Fraser said. "But that's not a matter of cash in the bank; that's gross income."

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Q. With the loss of the newsletter Mutual Fund Forecaster, are there magazines I can subscribe to in addition to Mutual Funds magazine to round out my knowledge?

A. Another monthly publication that focuses strictly on mutual funds is Morningstar FundInvestor, (800) 735-0700, which costs $89 a year. Of course, it's more expensive than Mutual Funds magazine, (800) 364-5854, which costs $14.97 a year.

Online money map

If you were planning to sign up a child or grandchild for the Florida Prepaid College Program, keep in mind that this year's deadline is Jan. 26. For information, check out the program's Web site (http://www.floridaprepaidcollege.com) or call (800) 552-4723. The plan currently available allows a buyer to lock in today's prices for tuition, fees and, if desired, dormitory rooms. Both lump-sum and monthly payment plans are offered. A different type of plan in which returns will be based on investment performance will become available later this year.

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731, or to huntley@sptimes.com by e-mail.